Sunday, August 29, 2010

Late August'snews that sales of previously owned homes in the United States fell 27.2% from June to July brought sales to the lowest level since the National Association of Realtors started keeping records in 1999. This has stoked fears of renewed weakness in the national housing market. Despite the recent drop in mortgage rates which has pushed rates to 50 year lows, buyers are reluctant to enter the market because of weaknesses in employment.

This story reminded me of something that I recalled reading a year ago about the Detroit housing market. I seemed to remember reading about houses that were selling for well less than a thousand dollars; I thought perhaps it was worth another look to see if the market had improved so I took a quick look through listings for Detroit on the National Association of Realtors website. At one time, Detroit had one of the highest owner-occupied housing rates in the United States. As well, single family dwellings dominated the city's housing market rather than high-rise apartment buildings commonly found in other major American cities. Home ownership is no longer the case; data now shows that Detroit has the lowest ownership rate for single detached homes in the 20 largest American cities.

I went through the listings and picked out a couple of houses that didn't look too shabby. I tried to pick houses that had photographs of the interior of the house; quite a number of homes have only a photo of the exterior and a surprising number of them are described as "fire damaged" so I skipped right past those and selected some respectable looking dwellings. I can't speak for the neighbourhood or the quality of the neighbours but this will give you an idea of the physical appearance of the houses for sale. I did have additional screen caps and views from Google Street View but I'm pretty sure Google took them off for me. You'd wonder why - my posting might have sold a couple of houses for a Detroit-based realtor!

There are over 1200 Detroit properties listed at a selling price of less than $10,000 on the realtor.com website (a few of the really cheap ones are rentals so my number is a bit off) . Many of the listings are HUD (U.S. Housing and Urban Development) homes and bank-owned foreclosures and some of the really low-priced homes have been fire damaged. What is surprising is that some of the houses look quite acceptable. Here's an example of a nicer home located at 18233 Winston - again, I can't speak for the neighbourhood other than a brief look at the Google Earth Street View but the house itself looks well maintained from the interior photos supplied. It's not like there was tumbleweed blowing down the streets and from what I can see, the neighbouring houses look respectable as well.

Detroit's real estate market has been on a downward spiral for several years. The drop in the population of Detroit has markedly affected the housing market. Detroit's population peaked at 1.849 million residents in the early 1950's and dropped to 871,121 by 2006 according to theUnited States Census Bureau. As a reflection of the change in population and demand for housing, HUD home prices have dropped from an average of $46,702 in 2003 to $6,035 in the first month of 2009 With HUD having 3992 properties in Detroit, apparently they own a lot of cheap real estate. According to a study entitled the "6th Annual Demographia International Housing Affordability Survey 2010" completed by Demographia using data from the third quarter of 2009, metropolitan Detroit, Michigan has the most affordable housing market for home buyers in the United States, Canada, Australia, New Zealand, Ireland and the United Kingdom. In fact, houses in Detroit are the most affordable in the six year history of the survey. For your information, Demographia calculates affordability by using the median house price divided by gross annual median household income. Incidentally, the city with the least affordable housing in the countries surveyed is Vancouver, Canada with a median multiple of 9.3 compared to Detroit's 1.6. Here's a chart showing the affordability of the top 85 markets in the nations examined by Demographia:

Apparently, this affordability has not gone unnoticed. Investors from around the world are buying multiple dwellings in single transactions; some are buying as many as 100 or more houses at one time. Some city officials are concerned about the concentration of housing in the hands of absentee landlords. Many feel that today's problems exist because of the 1960's exodus of white homeowners to the suburbs prior to and following the 1967 riot. These homeowners often bought new houses in suburban Detroit but kept their properties in the city and rented them out. As well, a HUD program that allowed purchasers to buy homes with no down payment certainly made it easier for the purchaser to walk away when the value of their mortgage exceeded the value of their property. With many houses selling for well less than $10,000, that is not hard to understand.

While the reasons for Detroit's real estate market collapse are most likely unique to the city itself, it is still very sad and disturbing when one considers that each of these homes was, at one time, a family's pride and joy.

Update: September 13th, 2010

Detroit city officials are planning to hold a series of meetings that will assist urban planners in their efforts to move the city forward. As it stands now, up to 10,000 homes will be demolished by 2013 starting with 3000 this year. Currently, the city does not plan to demolish entire neighbourhoods, rather, portions of the streets affected by demolition could be used to establish green spaces.

I had to remove the graphics and just put links to the realtor.com pages. Sorry but I suspect that Google may have removed the graphics for me since perhaps they were considered "copyrighted material" although I can't imagine why a realtor wouldn't want more exposure for what he/she was selling!

When I was a child I lived right up the street from that home on Cherrylawn. Glad to see a few houses in the old neighborhood still look decent.

It makes me want to cry when I see what has happened to Detroit. Mayor Bing has got a task in front of him, but if anyone can help jumpstart Detroit, I think he's the one that can do it. He's the first Mayor in over 50 years with any real-world business experience, he didn't take the job for the money (he's got a good NBA pension and has more than enough $$ for a very comfortable life) and I know he truly really loves Detroit. If I where 20 years younger than I am I'd come back home and give it a go myself.

Wow, a $100 house! But you totally fail to mention who is responsible for paying the back taxes on these homes once you buy it. It's the new owner! Why don't you try looking up the tax lien on these homes, they are available online.

Greedy corporations, unscrupulous union officials, a moronic electorate electing representatives that tax everything and everyone to death is the cause of Detroit’s demise. Detroit needs a pro-business environment that doesn’t mean we need to give a blank check to corporations to do whatever they want but taxing them right out of the state isn’t working either. We need to return to the center not just in Detroit but in the rest of the country. Who can spend your money more wisely, you or the government? If you think the government can you are part of the problem.

ya know it would be a better idea to move the better kept homes to an area that could keep city services and access to shopping close. this would save money to the city as sewers / water / elec service would be closer rather than so far away and keep cost down. my dad moved houses when i was growning up and these homes are prefect for moving. heck i could train 5 guys how to do this in about a week and start moving them out- rather than tearing up memories. keep detroit alive!

seriously?? you could move those houses?? how does that work? would be very interested to know how.Also - it seems there is a vibe of goodwill beginning to head detroits way, plus if enough artists and forward thinkers realise they can buy a whole street for the price of a shitty flat elsewhere, then you're goning to get a good influx of creative energy heading in and starting bars/shops/industry etc. mix that with the idea that you can live in a cuty that may soon have community gardens everywhere then you will have a place that people might start to flock to. hope so. all best to you

Keep in mind that a $10,000 listing price does not mean that the house will sell for $10k, or anywhere near it. Most of these are short sales, and the realtor will list as "$10k" so they come up in search results. These realtors then get as many offers as possible before taking them to the bank. A $10k house like that listed will likely end up selling for multiples of that($60k,$70k, more.)

If these listings are just a hook as Wanderer suggests, I guess the thing to do would be to see a list of what things are actually selling for, not what they are listed for.

I agree with Anon. that low prices like these, (should they actually sell at those prices), attract creative types who do indeed raise property values by creating desireable features such as a vibrant arts community, safe and positive neighbourhoods, and a small business economy.

Thanks Wanderer. Interesting still to see houses listed at $10,000 whether or not the price is used as a hook. I've not seen that used in very many places at prices that low. It would be interesting to know how many offers are made...if any.

I was born in Detroit, and with the exception of grad school, have lived in and around the Detroit area all of my life. Detroit has a long way to go before it can revitalize itself. Thoughts of artists and small businesses moving into the city are welcomed, but the fact is that Detroit taxes businesses and incomes at a rate higher than the suburbs, and Michigan's tax structure is not all that friendly (compared to adjacent states) to small businesses, either.

Detroit currently has massive problems delivering basic services to its residents, and its public school system is currently in a failure mode. All of these factors need to be addressed before Detroit will truly be "the Renaissance City" it dreams of becoming.

Using a low price as a hook or bait to attract offers is all well and good but if the real estate laws are the same there as here in Florida they have to sell it if the highest bid is only equal to that hook price. There is no ability to get out of the deal with some higher reserved price in an auction situation.

You don't know what you are doing when you speculate Real Estate from internet Orbit. The same reasons these houses are worth nothing, are still in full bloom in Detroit. Your $500 dream home would still cost you $12K per year in Property taxes, with no City Services in return(No Police, No Fire Dept, No Street Lights, the worlds worst schools, No jobs, No stores). Crime is unbearable, it's like a cross between a huge prison without bars, and "The night of the living dead". You don't know what you are dealing with. It's delusional speculators that keep the prices at $500. Without those ignorant outsiders, the prices would be $0. Try selling it once you buy it! No one will, and you will walk away also(but without plumbing or wiring in your nightmare house).

Quite fascinating. I am in Christchurch, NZ. We are having continuous earthquakes at present. Homes are being wrecked, but they are still worth quite a bit of cash. What sort of society allows its homes to collapse and does not fix them? How can you justify $12,000 taxes a year without any services? Is this America? Amazing.

It's call wealth redistribution. You justify it buy giving out freebies to deadbeats that vote for you. In the end, you end up with a disaster - as we see now in Detroit. It is the template for the entire country.

It's definitely wealth redistribution - the heads of the auto companies paid off legislators in order to remove taxes and tariffs on producing their goods in foreign nations where labor and compliance costs were much lower. In doing so, they transferred the vast majority of the middle class' wealth into their own pockets, and decimated an entire region.

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About Me

I have been an avid follower of the world's political and economic scene since the great gold rush of 1979 - 1980 when it seemed that the world's economic system was on the verge of collapse. I am most concerned about the mounting level of government debt and the lack of political will to solve the problem. Actions need to be taken sooner rather than later when demographic issues will make solutions far more difficult. As a geoscientist, I am also concerned about the world's energy future; as we reach peak cheap oil, we need to find viable long-term solutions to what will ultimately become a supply-demand imbalance.